PRESENTATION OF BILLS OF LADING

A key characteristic of the bill of lading is that the delivery of the goods is made against physical production of a bill of lading. A bill of lading will usually be “clean”, i.e. it will note the apparent good order and condition of the goods without any remarks. A notation can only be made at the time of loading, and a later notation will have no effect and the bill will be treated as if it were clean.

A claused bill will not usually be acceptable to a third party, and a financing bank acting on behalf of the buyer in a letter of credit transaction will almost certainly reject it. A carrier will not usually deliver the goods without the surrender of one of the original bills from the set, indeed “it is perfectly clear law that a shipowner who delivers without production of the bill of lading does so at his peril.”

The carrier is liable to pay substantial damages in the event of misdelivery. Misdelivery will be an interference with the right of the “true” cargo owner to possess and dispose of the cargo, which means that the carrier is deemed to have “converted the goods” and is, therefore, liable in both contract and tort (for conversion), rendering the shipowner potentially liable for the full value of the cargo to the “true” cargo owner.

In the absence of any conflicting claim to the cargo, or knowledge of circumstances that ought to raise a reasonable suspicion that the holder is not entitled to the cargo, the carrier is obliged to deliver the cargo to the first holder who presents an original bill that makes the cargo deliverable to him. Once this has taken place the other bills from the same set of three are rendered void, and the carrier’s obligations are discharged.

Where a bill of lading is issued in sets of three originals, the shipowner is protected as long as he delivers against production of any original; he need not require tender of all three, nor need he take steps to enquire whether the holder of the original presented is in fact entitled to take delivery of the cargo. It should be noted that delivery must be made against original negotiable bills of lading and not against photocopies or even certified copies. 

The traditional thinking was that a shipowner who had delivered the goods other than against the surrender of the original bill of lading, was not entitled to rely on any exception clause in the bill of lading to escape liability to the true goods owner. In other words, misdelivery was viewed as a fundamental breach disbarring the carrier from relying on such provisions.

Furthermore, it should not be forgotten that the true owner of misdelivered goods may well be able to bring a tortious claim for conversion thereby avoiding any exemption clause, even in the case of fraud. 

P&I clubs have expressly excluded recovery from club funds from claims resulting from the adverse consequences of delivering cargo without the production of a bill of lading. The carrier would, therefore, be delivering without insurance. The International Group of P&I Clubs has, however, authorised the issuance of standard form letters of indemnity where letters of credit may be “stuck” in the banking system, or where the owner/carrier may be subject to heavy commercial pressure from consignees or charterers to release the cargo without surrender of any original bill. These may be used to secure the carrier’s right to indemnification for delivering the cargo in accordance with the standard form letter of indemnity.

In practice, because the inability to produce an original bill of lading at the discharge port is usually due to unavoidable delays in the processing of the bill of lading rather than fraudulent conduct, carriers will usually be prepared to deliver cargo against either adequate security or an indemnity against potential claims. The P&I clubs’ recommendation is that a letter of indemnity should be given by a bank or entity of similar financial standing.

Charterparties sometimes contain indemnity clauses, under which the charterer promises to indemnify the owners for liabilities that might arise from the charterers’ orders to the master.

By: Mohamed Fawzy Elsaman